A week into the US banking storm following the failures of Silicon Valley Bank on March 10 and Signature Bank of New York on March 12, Odeon Capital Group analyst Dick Bove declared on Thursday that the crisis is “over” and the industry is “overcoming its problems.” solve.”
First, let’s review the events that caused Bove to heave a sigh of relief:
Silicon Valley Bank (which was a subsidiary of SVB Financial Group SIVB,
) quickly failed after taking losses while selling securities to raise cash to cover larger-than-expected deposit outflows resulting from “elevated cash burn levels” among its clients, including venture-capital firms.
Greg Robb details how a perfect storm caused the downfall of SVB.
Signature Bank of New York (which was held by Signature Bank Corporation SBNY,
) had a diversified business model, but the services it developed for virtual-currency exchanges and related companies in recent years led to a damaged reputation, especially after the bankruptcy of FTX in November. Its deposit outflows accelerated until state regulators decided to close the bank.
Following the Signature Bank failure, the Treasury Department, the Federal Reserve and the FDIC took two extraordinary steps on March 12. First, he said that all depositors at the two failed banks would have full access to their money, including uninsured deposits. Regulators also said the Fed has set up a new lending facility that will allow banks to make new loans secured by the par or face value of their securities. This meant that banks would not be forced to sell bonds at a loss in order to increase liquidity after rising interest rates reduced their market value.
But those measures did not stop deposits at First Republic Bank FRC,
of San Francisco. During the fourth quarter, First Republic was one of the few large regional US banks whose interest margin decreased compared to a year ago.
March 12, following regulatory actions on First Republic Said Its liquidity and capital remained “very strong”, not only because of the Fed’s new lending facility, but also because of “continued access to funds through the Federal Home Loan Bank”. [of San Francisco]and the ability to access additional financing through JPMorgan Chase & Company.
Despite all this, the race for deposition continued in the First Republic. After the bank provided updated information saying that its overnight borrowings from the Federal Reserve at an interest rate of 4.75% ranged from $20 billion to $109 billion between March 10 and March 15, Jefferies analyst Ken Usdin estimated that “the total Deposit outflow could be up to $89. B,” in a note to clients on Friday.
But the good news on Thursday was that a group of big banks, led by JPMorgan Chase JPM
agreed to deposit $30 billion in the First Republic. There was a tremendous inflow of deposits into many of these banks as individuals and companies moved their money from regional banks.
Bove wrote in a note to customers late Thursday that it appears the US banking industry is “coming together to fix the industry’s problems,” adding that deposit runs at “any meaningfully sized bank” should be limited. Enough money would be available to stop it and it appeared that the federal government was “off the hook”.
Bove predicted in a note on Tuesday that Royal Bank of Canada RY,
Will renews his efforts to regain the First Republic.
Usdin also believes that “FRC is likely to seek a buyer,” as the bank “could generate negative earnings as a stand-alone entity.”
More on the latest banking industry and regulatory developments:
How one business owner handled the aftermath of the demise of Silicon Valley Bank
Rafat Ali, CEO of Skift.
photo courtesy of Skift
A dire financial event may seem far-fetched if you’re not directly affected, but individuals can face upheaval.
Silicon Valley Bank, according to estimates by its holding company, had $151.5 billion in uninsured deposits as of December 31. between the March 10 bank failure and federal regulators’ promise to cover all deposits March 12 was a matter of great concern for many companies. Roku Inc. stop,
For example, on March 10 said that $487 millionOr 26% of its cash was on deposit with the SVB, much of which was not insured.
Beth Pinsker interviews Rafat Ali, CEO and Founder of shift, who initially thought his business was “done.” Here’s how Ali and his team saved their business over the weekend following the Silicon Valley bank failure.
Fear of depositors spread in Europe
Arnd Wiegmann/Getty Images
Credit Suisse Group AG CS,
It has its own liquidity problems, which the Swiss National Bank has addressed with a backstop announced on Wednesday. Credit Suisse said on Thursday it would borrow about $54 billion through the new facility.
Shares of Credit Suisse fell for their worst week since the 2008 financial crisis
Are your bank deposits safe?
Anyone with a bank deposit seeks safety as part of the trade-off for lower returns.
Getty Images/iStockphoto
Typical savers at US banks are probably so comfortable that the FDIC’s basic deposit insurance limit is $250,000. But it might also surprise you that an estimated 43% of all US deposits were not insured as of December 31, according to the FDIC. Can get off quickly in hot water.
It turns out, depending on how your bank accounts are registered, you can get more than $250,000 insured by the FDIC at a single bank. CD Moriarty shares a strategy for maximizing your insured deposit.
More: Where should you keep your cash amid the banking scare? Financial advisors offer tough love.
Will the Fed stop raising interest rates because of the bank mess?
Federal Reserve Chairman Jerome Powell will speak again on March 22 about the central bank’s policies to reduce inflation.
Anna Moneymaker / Getty Images
Rising interest rates are a mixed bag for banks. So far, the rates paid for industry deposits have increased slowly, as compared to the pace of increase for loan rates. That’s why US banks’ combined net interest margin rose to 3.37% in the fourth quarter from 2.55% a year ago, according to the FDIC. Quarterly Banking Profile,
But as interest rates rise, the market value of bonds automatically declines. This has put pressure on the capital levels of banks. This also caused a lot of trouble in Silicon Valley Bank.
So could the Federal Reserve take a break from its interest rate hikes after the Federal Open Market Committee meeting on March 21-22?
Most economists expect the Fed to raise the federal funds rate target range by 25 basis points on Thursday, following the European Central Bank’s 50 basis-point move, Greg Robb reports.
More on the economy and central bank policies
What’s next for venture capital and startup companies?
The California venture capital community lost an important pillar of support when Silicon Valley Bank failed.
Nathan Vardy explains how Silicon Valley Bank built strong relationships with venture-capital firms over decades.
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